Wefox has pared back its underwriting to three main business lines as its new chief executive reportedly warned there was a risk that the European insurance technology group may be close to insolvency.
According to the 2023 annual report of its underwriting arm, wefox Insurance AG, the insurance technology company has stopped underwriting motor, household and private liability insurance in Germany and Switzerland, and motor insurance in Italy. As a result, the company will no longer underwrite in Italy. However, it will continue to write short-term absence cover in Switzerland, e-bike cover in Germany and motor in Poland.
Wefox Executive Chairman and CEO Mark Hartigan told shareholders in a memo that there was a scenario in which the group's holding company "becomes insolvent in August, or potentially even earlier," Sky News reported May 16
Wefox Insurance AG made a loss of €35.8 million in 2023 following a €32.1 million loss in 2022, according to the report.
Hartigan, who took over as the group's CEO from co-founder Julian Teicke on March 6, said in the memo that the Italian business "is now insolvent without group cash support" and that liabilities in Germany were "very significant and could introduce a large cash strain on the company," Sky News reported.
"We do not comment on rumors or speculation," a wefox spokesperson told S&P Global Market Intelligence in an email.
Cash injections
Despite these headwinds, investors have been putting more money into the insurance technology company. London-listed Chrysalis Investments Ltd. said in a stock exchange announcement May 17 that wefox had raised around €20 million from shareholders "in the past few weeks" and that Chrysalis itself had contributed €3 million to support wefox's strategy of simplifying its business model.
Chrysalis said earlier in May that the valuation of its wefox stake had fallen to £126.5 million as of March 31, 2024, from £188.8 million as of Dec. 31, 2023. It said this was in part down to "strategic repositioning within the business."
Insurance underwriting arm wefox Insurance AG also received a cash injection of about €5.8 million on March 27 to strengthen its capital reserves, according to the 2023 annual report.
The insurance arm is only part of wefox's total business. Chrysalis said the group as a whole had revenues of €800 million in 2023. Ultimate parent wefox Holding AG, based in Switzerland, was established as an insurance broker in 2014. Liechtenstein-based wefox Insurance AG, then known as ONE Insurance Ltd., started writing business in 2018 after getting its insurance license from the Liechtenstein regulator in February that year.
The group as a whole was valued at €4.5 billion in 2022 following a €450 million series D investment round led by Mubadala Investment, according to wefox's website.
Wefox did not respond to a question regarding how much of the overall group's current status was attributable to its underwriting business.
By the numbers
Wefox Insurance AG was comfortably solvent at the end of 2023, according to its solvency and financial condition report (SFCR). Its Solvency II coverage ratio, which shows eligible own funds as a percentage of its solvency capital requirement, was 161% as of Dec. 31, 2023, the report shows.
The insurance underwriting arm wrote €236.9 million of gross premium in 2023, up from €195.9 million in 2022. Short-term absence cover is the insurer's largest business line, with 2023 gross written premium of €112.8 million, or 48% of the total. Motor is the second-largest line, with gross written premium of €76.1 million. German, Swiss and Italian motor, which the company is exiting, accounted for €32.6 million of this, according to Market Intelligence calculations based on the SFCR. The Polish motor business accounted for €43.6 million of the total in 2023.
Wefox Insurance AG reported a net combined ratio, which measures underwriting profit, of 123% in 2023, an improvement on the 133% it reported in 2022, according to the SFCR. All business lines remained above the 100% break-even mark in 2023. The worst-performing lines were general liability, with a combined ratio of 688%, and property, with a combined ratio of 100%. The best-performing line was health, with a combined ratio of 110%.
At the country level, Germany and Italy both made underwriting losses in 2023, while Poland and Switzerland were both profitable. Germany's underwriting loss improved slightly year over year to €6.9 million from just under €8 million, and Italy's underwriting loss deteriorated sharply to €3.3 million from €991,620.
Cost structure
As a result of the business cutbacks, "the cost structure will be further optimized," and work will continue to strengthen claims capabilities, wefox Insurance AG said in its SFCR. The company did not respond to questions about the source of cost savings or the impact on employees.
The retained businesses "still represent sizable addressable markets," the company said in its report, and the remedial work means the insurer is "on [the] path to breaking even, with improvements becoming visible in 2024 already." The company did not provide a target date for breaking even when asked.
The wefox spokesperson said the simplification of the business model "will allow us to save costs and will provide us with the financial flexibility to continue pursuing our ambition of making insurance distribution smarter, more effective, and more efficient through technology."
